U.S. commercial banks and savings institutions had a blockbuster third quarter, reporting a 13% rise in net income, as loan growth and higher interest income produced the largest-ever nominal quarterly profit recorded by the Federal Deposit Insurance Corp.
The 5,980 FDIC-insured institutions earned $45.6 billion in the third quarter, a $5.2 billion increase from the same period a year ago, the FDIC said in its quarterly report on the health of the banking system. It was also a slight increase from the $43.6 billion earned in the second quarter.
"Revenue and net income rose from a year ago, loan balances increased, asset quality improved, and the number of unprofitable banks and 'problem banks' continued to fall," FDIC chairman Martin Gruenberg said. "Community banks also reported solid results for the quarter with strong income, revenue and loan growth."
Loan and lease balances at U.S. institutions grew by $112 billion during the third quarter, slower than the $182 billion increase reported for the second quarter.
Low interest rates for an extended period have prompted some institutions to reach for yield, increasing their exposure to "interest risk, liquidity risk and credit risk," Gruenberg said.
The current level of oil and gas prices also continues to take a toll on borrowers that depend on the energy sector, according to Gruenberg.
Banks set aside $11.4 billion in loan-loss provisions in the third quarter, $2.9 billion more than in the year-earlier period. In the second quarter, they set aside $11.8 billion.
Dallas, Texas-based Comerica (CMA) has come under shareholder pressure after being hit by energy-loan losses. Faced with mounting shareholder concerns, the lender announced plans to cut costs.
The industry reported revenue of $183 billion in the third quarter, up from $179 billion in the second quarter, with about 71% of insured banks reporting higher year-over-year operating revenue. An accounting change at Bank of America (BAC) resulted in a sizable increase in its interest income during the quarter, somewhat distorting the overall industry results, according to the FDIC.
The number of insured banks continued to contract, dropping to 5,980 in the third quarter from 6,058 in the second quarter. Mergers absorbed 71 insured institutions during the period, according to the FDIC. The total number of banks is down from 8,533 in the fourth quarter of 2007, before the financial crisis reached its apex.
The FDIC's "Problem List" banks -- those in jeopardy of failing -- declined to 132 during the third quarter, from 147 in the second quarter. Only two banks failed in the third quarter, the same number as in the same period a year ago.
"It's hard to think about the big negatives when you have positive earnings, loan growth strong, problem loans down and a low number of institutions that are struggling," said James Chessen, chief economist at the American Bankers Association, an industry group.
Donald Trump's election this month as president has fueled speculation that Gruenberg, an Obama Administration appointee, might step down before his term expires in November 2017. Trump, during the campaign, pledged to reduce banking regulations put in place following the financial crisis.
On Wednesday, Gruenberg told reporters he intended to stay as chairman throughout the rest of his term.
He also declined to speculate about whether the incoming administration would seek to dismantle sections of the post-crisis Dodd-Frank Act that the FDIC helped implement.
Gruenberg also sits on the Financial Stability Oversight Council, a panel of regulators that seeks to identify future financial risks. The FSOC has designated a few non-banks as "systemically important," subjecting them to additional restrictions, but many regulatory analysts speculate that the Trump administration and a Republican-backed Congress would seek to take away that authority.